Fannie and Freddie Give Birth to New Mortgage Bond

In an effort to avoid billions of dollars in potential taxpayer losses in another mortgage crisis, the federal government is rolling out a new asset class. Next year, Fannie Mae and Freddie Mac plan to increase sales of new types of securities that transfer potential losses in a housing downturn to private investors. The securities -- Connecticut Avenue Securities by Fannie Mae and Structured Agency Credit Risk by Freddie Mac -- essentially are bonds whose performance is tied to a pool of mortgages, with investors losing some or all of their principal if the mortgages default. Earlier this month, the Federal Housing Finance Agency said Fannie and Freddie would transfer the credit risk on 90 percent of the unpaid principal balance on the riskiest mortgages backed by the companies to private investors in 2016. It remains uncertain how much appetite investors have for the new securities, but observers say they currently are the only outlet for investors to get exposure to new residential mortgage credit risk.

From "Fannie and Freddie Give Birth to New Mortgage Bond"
Wall Street Journal (12/29/15) Light, Joe

Friday Rate Update

Mortgage Rates Continue to Tick Up 

​The rate for a 30-year fixed-rate mortgage averaged 3.97 percent this week, up from last week’s 3.95 percent rate, Freddie Mac said yesterday​. At this time last year, the 30-year FRM rate averaged 3.8 percent. This week’s 15-year FRM rate averaged 3.22 percent, up from last week’s rate of 3.19 percent. A year ago, the 15-year FRM rate averaged 3.09 percent.

--ABA Daily Newsbytes

Risky Loan Survey

In a report issued Dec. 9, the Office of the Comptroller of the Currency said U.S. banks eased their loan underwriting standards and took on more credit risk this year, with lending trends similar to those in the years leading up to the financial crisis. "Similar to pre-crisis surveys, the 2015 survey reflects that many banks are pursuing portfolio growth and yield by loosening underwriting standards. Credit risk is increasing because of these trends," said the report. Underwriting standards for retail loans eased at 27 percent of the major banks surveyed, marking the highest level since 2006 and the third straight year of banks loosening their standards. The OCC says the less stringent standards were mainly associated with indirect loans and credit cards and could be seen in changes to credit lines, pricing, fees, debt-to-income ratios, scorecard cutoffs, and documentation requirements. Credit risk increased in just 16 percent of retail products. Banks attributed their underwriting of riskier loans to growth in lending along with easing underwriting standards, strong competition, expected changes in interest rates, and other economic factors.

From "U.S. Banks Ease Underwriting Standards, Increase Risky Loans: Federal Survey"
Reuters (12/09/15) Lambert, Lisa

New FHA Limits

The Federal Housing Administration released its 2016 schedule of loan limits. Maximum loan limits will rise in 188 counties with no decreases. There is no change to the national loan limit ceiling of $625,500 for high-cost areas or the $271,050 floor for low-cost areas. The FHA recalculates its loan limits annually based on 115 percent of the median house price in each area. The new loan limits take effect Jan. 1

---ICBA

More Homeowners Rise From Underwater

In this year's third quarter, almost 1 million fewer homeowners were underwater versus the prior three months. However, some of the areas hardest hit by the housing boom gone bust continue to have a tough go of it. This summer, Zillow says 13.4 percent of U.S. homeowners were underwater, a decrease from 16.9 percent a year earlier. Las Vegas -- which has had the highest percentage of homeowners underwater for more than four years running -- remained on top with a little more than 22 percent of homeowners still owing more than their residences are worth. Not far behind were Chicago (20.6 percent) and Atlanta (18.6 percent). Meanwhile, some of the worst-hit cities logged the biggest improvements. In Atlanta, for example, the share of underwater homeowners fell 8.5 percentage points from the third quarter of 2014. Zillow chief economist Svenja Gudell remarks, "In these markets, there are just so many people that are underwater that if you're blanketing them with home-value appreciation they are much more likely to see larger drops in that negative equity rate."

From "More Homeowners Rise From Underwater"
Wall Street Journal (12/04/15) P. A3 Kusisto, Laura

Survey: 3.4 Billion People Are Financially Illiterate

Two out of three adults worldwide -- an estimated 3.4 billion total -- have low financial literacy, according to a survey released yesterday by Standard & Poor’s. Fifty-seven percent of U.S. adults are financially literate, the survey found, two points above the average for major advanced economies. Two-thirds of U.S. homeowners had high levels of financial literacy.

The survey of 150,000 adults in 148 countries also identified a financial literacy gender gap in virtually every country. In the U.S., the study found that 62 percent of men are financially literate, compared to only 52 percent of women, a gap twice the size of the global average. The study also found that Americans with less education and lower incomes have lower financial literacy levels than their counterparts in other countries

---ABA Daily Newbytes

ABA, States Urge Support for QM Portfolio Bill 

ABA and 53 state bankers associations yesterday urged Congress to pass legislation (H.R. 1210) that would deem all mortgage loans that institutions originate and hold in portfolio as “qualified mortgages” for purposes of the ability-to-repay rule’s safe harbor provisions. The House is expected to vote on the bill this week despite the threat of a presidential veto.

“Portfolio lending is among the most traditional and lowest risk lending in which a bank can engage,” the groups wrote, noting that the bank carries all the credit and interest rate risk. They added that existing mortgage rules, especially the QM standards, “are overly restrictive and have made it difficult and in some cases impossible for banks to make these otherwise safe and sound loans to creditworthy borrower.

---ABA Daily Newsbytes